At the European Council on 9 December, the 17 members of the eurozone and several other EU countries agreed to work towards a stronger economic union. This implies:

• a new fiscal compact and strengthened economic policy coordination;
• the development of stabilisation tools to face short term challenges.

The fiscal compact agreed at the European Council in December will be implemented through an international agreement open to all EU member states, not only to eurozone members.

This will be discussed at an informal European Council which Herman Van Rompuy has announced that he will convene some time towards the end of January or beginning of February 2012. At that meeting, the 27 will also discuss growth, competitiveness, and employment.

Signature of the agreement is planned for March 2012 at the latest. The objective remains to integrate these provisions into the EU treaties as soon as possible.

Meanwhile, to address market tensions, action will be undertaken in the short and medium term through financial instruments, the EFSF and the ESM.

Eurozone and other member states will consider providing additional resources to the IMF to ensure it has adequate resources to tackle the crisis. This would be provided in the form of bilateral loans of up to 200 billion euro.

The member states are expected to confirm in December their decision to provide funds to the IMF.

Leveraging will enable increased capacity of EFSF resources, without extending the guarantees provided by the member states. Two approaches to leveraging:

• insurance: partial protection of new bond issuances by beneficiary member states;
• use of EFSF finance in combination with other public and private funding to enhance operations;

• Entry into force brought forward to July 2012 as soon as member states representing 90 % of ESM capital commitments have ratified it.
• Private sector involvement (PSI) in line with IMF principles; decisions concerning Greece's debt have been unique and exceptional.
• New voting rule for emergency situations identified by the Commission and the ECB: decisions on financial assistance can be taken by a qualified majority of 85%.
• Adequacy of the 500 billion euro joint ESM/EFSF ceiling to be reassessed in March 2012.

If the ESM is ratified in 2012, the EFSF and the ESM will operate in parallel until the active EFSF programmes are completed.  The EFSF will not launch any new programmes after mid-2013 but will continue to ensure the financing of ongoing programmes as needed.

Heads of State or Government have welcomed the disbursement agreed by the Eurogroup on 21 October of the sixth instalment of the bilateral loan to Greece.

The first instalment was disbursed in May 2010.

A new adjustment programme is being negotiated to cover Greece's financing needs up to 2014.

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On 21 July, eurozone leaders decided that in connection with the future second financial assistance programme for Greece, and in order to render its debt profile more sustainable, private sector holders of Greek government debt should agree to a voluntary reduction in their claims.

The rules of the fiscal compact include:

• general government budgets must be balanced or in surplus - the annual structural deficit may not exceed 0.5% of nominal GDP;
• member states to include such a rule in national law, at constitutional or equivalent level;
• mechanism for automatic correction in the event of deviation;
• ex-ante reporting by member states on national debt issuance plans;
• automatic consequences when a eurozone member state's deficit exceeds 3% of GDP, including steps towards sanctions, unless a qualified majority of euro area member states is opposed.